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You Are Evaluating a Product for Your Company

question 61

Multiple Choice

You are evaluating a product for your company. You estimate the sales price of the product to be $200 per unit and sales volume to be 2,000 units in year 1; 5,000 units in year 2; and 1,000 units in year 3. The project has a three-year life. Variable costs amount to $75 per unit and fixed costs are $200,000 per year. The project requires an initial investment of $360,000 in assets that will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $40,000. NWC requirements at the beginning of each year will be approximately 20 percent of the projected sales during the coming year. The tax rate is 34 percent and the required return on the project is 13 percent. What will the year 2 free cash flow for this project be?

Grasp the basics of activity-based management (ABM) and its importance.

Recognize how products and services consume resources differently according to their complexity and batch size.

Learn about cost pools, drivers, and their roles in the cost allocation process.

Understand the concept and calculation of equivalent units of production.

Definitions:

Defense Mechanism

Psychological strategies unconsciously used by individuals to protect themselves from anxiety or to cope with reality.

Compensation

The total amount of the monetary and non-monetary pay provided to an employee by an employer in return for work performed as required.

Tachycardia

An abnormally fast heart rate, usually over 100 beats per minute in adults, indicating potential heart or health problems.

Hyperventilation

Rapid or deep breathing that can lead to reduced carbon dioxide levels in the blood, causing symptoms like light-headedness or tingling of the limbs.